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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.

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Speaker 2: Welcome to the Debreak Asia Podcast. I'm Doug Chrisner. Israel

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Speaker 2: and Iran appear to be honoring a ceasefire broker by

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Speaker 2: President Trump Lake Monday, despite some early reporting of violations

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Speaker 2: on both sides. Earlier in the day, President Trump issued

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Speaker 2: some harsh criticism to both countries.

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Speaker 3: We basically have two countries that have been fighting so

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Speaker 3: long and so hard that they don't know what the

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Speaker 3: sayre doing.

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Speaker 2: You understand that President Trump speaking there as he traveled

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Speaker 2: to the Hague for this week's NATO summit. We also

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Speaker 2: heard in the last session from FED Schaer J. Powell.

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Speaker 2: He began two days of congressional testimony on Tuesday, and

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Speaker 2: he repeated that he's not in a hurry to cut

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Speaker 2: interest rates. In a moment or two, we'll take a

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Speaker 2: look at the Fed's path with Joeanne Bianco, senior investment

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Speaker 2: strategist at bond Blocks. But we begin this morning with geopolitics.

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Speaker 2: Israel and Iran have spent the better part of the

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Speaker 2: past two weeks exchanging strikes, and in the process, the

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Speaker 2: US was drawn into this conflict. The situation highlights the

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Speaker 2: role of another power player though China. Joining me now

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Speaker 2: is Jenny Marsh. Jenny is Greater China Eco GUV team

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Speaker 2: leader for Bloomberg News, and she joins us from our

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Speaker 2: studios in Hong Kong. It's always a pleasure to benefit

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Speaker 2: from your perspective. And as long as we're talking about geopolitics,

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Speaker 2: let's talk about what's going on between the US, Israel,

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Speaker 2: and Iran. Now, after the strikes, the recent strikes by

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Speaker 2: the US government on Iranian nuclear facilities, Beijing issued a

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Speaker 2: strong condemnation and basically called it a violation of the

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Speaker 2: UN Charter and of international law. I'm wondering whether or

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Speaker 2: not China may have played a role in this. Do

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Speaker 2: you have a sense of that.

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Speaker 4: My sense is it China very much will be remembered

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Speaker 4: for sitting on the sidelines. You know, Like they issued

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Speaker 4: this very strong statement condemning the US, and they talked

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Speaker 4: about how America was sort of blowing up, you know,

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Speaker 4: the international system for sort of maintaining order I the

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Speaker 4: US led you know, UN framework for resolving conflicts. And

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Speaker 4: before the US strikes, you know, she and Putin had

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Speaker 4: got on the phone and sort of worked out this

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Speaker 4: four point plan for peace. But really for China, they

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Speaker 4: kind of left it at diplomacy, and I don't think,

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Speaker 4: you know, they were particularly effective in what they were messaging.

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Speaker 4: We know that Wangyi spoke to both the Israeli and

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Speaker 4: the Uranian foreign ministers, so there was some sort of

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Speaker 4: attempt at sort of back channeling. But essentially, you know, Tehran,

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Speaker 4: you know, China was one of Tehran's sort of strongest partners,

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Speaker 4: and when it came to its darkest hour, China really

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Speaker 4: didn't do much apart from call for peace.

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Speaker 2: Is it pretty much a selfish move that boils down

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Speaker 2: to crude oil? Is that really what this is about?

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Speaker 2: This relationship?

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Speaker 4: I think this relationship is about the US, and I

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Speaker 4: think one of the reasons I say that is, yes,

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Speaker 4: China is one of the places that will buy sanctioned

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Speaker 4: Iranian oil. It's a very very slim percentage of China's

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Speaker 4: oil supplies, about ten percent, and they can easily source

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Speaker 4: this oil from other places. And I think, you know,

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Speaker 4: there's a couple of practical reasons why these sort of

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Speaker 4: it's mainly sort of these teapot refineries in northern China

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Speaker 4: that take this oil. It's much cheaper. But also I

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Speaker 4: think the Chinese government tolerates it because they are vehemently

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Speaker 4: opposed to the US sanctions regime, and so they they

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Speaker 4: let this go as a way of sort of defying

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Speaker 4: the US sanctions regime, which is something they and Russia

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Speaker 4: and Iran are all united in opposing. But I think

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Speaker 4: the broader relationship with Iran has been about sort of

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Speaker 4: finding partners that it will join hands with Beijing and

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Speaker 4: challenge the US of world order. And I think you

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Speaker 4: can see that through you know, she has ushered Iran

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Speaker 4: into the Bricks Group of Emerging Markets, which is this

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Speaker 4: block that it's expanding with India and South Africa and

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Speaker 4: Brazil as sort of a kind of a rival framework

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Speaker 4: to the G twenty. It also welcomed Iran in the

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Speaker 4: last couple of years into the Shanghai Cooperation Organization, which

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Speaker 4: is another sort of grouping that it's expanding, which has

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Speaker 4: more of a security flavor. But when it comes to

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Speaker 4: sort of trade with Iran, I mean the trade is

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Speaker 4: very very isn't significant, you know, it doesn't sell much

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Speaker 4: to Iran. Actually, trade with Iran actually fell off in

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Speaker 4: the first four months of this year. It was down

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Speaker 4: about twenty percent, and the broader Middle Eastern region, from

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Speaker 4: my bottom road perspective, is more important to Beijing. So

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Speaker 4: I think really this was sort of, you know, a

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Speaker 4: partnership of convenience, and for China was always about finding

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Speaker 4: partners that will stand hands join hands with it to

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Speaker 4: stand against the US.

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Speaker 2: So to that point, maybe China is not so reliant

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Speaker 2: on Irani and crude oil. I get the fact that

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Speaker 2: they're only going to import let's say ten percent, but

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Speaker 2: the Strait of Hormuze, I would imagine, is perhaps more critical.

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Speaker 2: And if there were a way for Beijing to become

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Speaker 2: influential in dialing down a lot of this tension just

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Speaker 2: so that the conflict didn't extend into the strait, is

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Speaker 2: that part of the thinking here as well.

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Speaker 4: Yeah, so I think the Strait of Homus is definitely

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Speaker 4: a different story in a much, much, sort of more

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Speaker 4: alarming concern for China. About forty five percent of its

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Speaker 4: oil shipments that come through that straight and China is

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Speaker 4: the country that is most dependent on the oil coming

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Speaker 4: through that waterway globally, so yeah, massive exposure there. That

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Speaker 4: being said, China has been stockpiling on oil. So if

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Speaker 4: the wars a crisis that closed the straight for you know,

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Speaker 4: a short period of time, it wouldn't feel the immediate impact,

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Speaker 4: but in the long term, absolutely doesn't want this conflict spiral.

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Speaker 4: And I think that was the message from the four

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Speaker 4: point plan that she put forward. He talked about like

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Speaker 4: not wanting this to expand, and when they're condemning the US,

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Speaker 4: they were saying, you know, the US is fanning the

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Speaker 4: flames of war and would be to blame essentially if

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Speaker 4: this did become a broader conflict. I think the problem

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Speaker 4: for China is like, how can it affect or what

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Speaker 4: is it willing to do to stop it from becoming

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Speaker 4: a broader conflict, And the answer is not very much.

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Speaker 4: You know, China doesn't like to get its hands dirty

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Speaker 4: in foreign conflicts. It definitely doesn't go anywhere near the

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Speaker 4: US play because these sort of far away wars and

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Speaker 4: military operations, and even with Russia, which it has a

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Speaker 4: much stronger trade relationship and sort of interdependency with Russia

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Speaker 4: has now overtaken Saudi as the top supplier of crude

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Speaker 4: oil to China. Even when Puutine went to war in Ukraine,

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Speaker 4: she was very careful not to do anything they would

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Speaker 4: invite US sanctions so yes, he stepped up economic support

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Speaker 4: and diplomatic support, and then there was there's some controversy

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Speaker 4: about sort of you know, the dual use items that

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Speaker 4: have been shipped but never only to direct you know,

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Speaker 4: military support that would cross these red lines in America

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Speaker 4: and Europe laid out very clearly, you know, and I

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Speaker 4: think China is a country you have to remember that

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Speaker 4: has no formal allies by design, you know, and its

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Speaker 4: self interest will always be it's sort of north star

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Speaker 4: of what it does when these kind of conflicts break out.

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Speaker 2: Do we want to include North Korea even at the fringe?

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Speaker 4: Yeah, North Korea is the closest that China does have

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Speaker 4: to an ally, and obviously in the nineteen fifties it

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Speaker 4: did go to war for the North Koreans, but it's

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Speaker 4: still today. I mean, it doesn't want North Korea to

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Speaker 4: have nuclear weapons. China has a non proliferation policy, you know,

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Speaker 4: and ties between she and Kim have been sort of

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Speaker 4: entering this frostier period over recent years, and we've seen

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Speaker 4: then North Korea become closer to Putin and actually the

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Speaker 4: North Koreans being the one that did offer Russia substantial

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Speaker 4: support as the war in Ukraine sort of ground on

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Speaker 4: into its sort of fourth year.

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Speaker 2: What is the degree of anti American feeling right now

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Speaker 2: in China? Not just because of what we're describing here

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Speaker 2: in terms of Israel Iran, but I'm thinking of whether

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Speaker 2: it's Taiwan, whether it's the US China trade war. Give

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Speaker 2: me a sense of the degree to which people in

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Speaker 2: China are feeling very anti American.

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Speaker 4: I think that is a really interesting question, and it

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Speaker 4: hasn't been as prominent as you might have thought, sort

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Speaker 4: of broadly towards American people. The Minecraft movie came out

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Speaker 4: in China and did pretty well, and we've seen other

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Speaker 4: sort of examples of sort of American soft power being

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Speaker 4: powerful even though the US and China are locked in

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Speaker 4: this trade war. I almost wonder if the Chinese people

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Speaker 4: sort of are able to separate Trump and you know,

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Speaker 4: the aberration or you know that is Trump from the

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Speaker 4: average American people. There was people talking about, you know,

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Speaker 4: how foolish Run had been to sort of trust the US, saying,

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Speaker 4: you know, the US came in to negotiate, then it's

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Speaker 4: ally hit Iran, and then the US hit Iran. You know,

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Speaker 4: the Iranians were falls for ever trusting America, so there

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Speaker 4: was a lot of that kind of sentiment. But I

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Speaker 4: think actually the Chinese people sort of it is not

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Speaker 4: this sort of like horizon nationalism. And I think that

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Speaker 4: is partly because the Chinese government has learned from the

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Speaker 4: first time around the first Trade War, you had this

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Speaker 4: wolf warrior policy that really stoked up a lot of

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Speaker 4: bad feeling. Then you had sort of people like huci

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Speaker 4: Jin the old the former editor in chief of the

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Speaker 4: Global Times, who were allowed to sort of really run

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Speaker 4: wild on social media. You know, when Nancy Pelosi was

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Speaker 4: flying into Taiwan, he was posting things about, you know,

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Speaker 4: perhaps shooting down you know, the jet as she came in,

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Speaker 4: which obviously just was a step too far. And I

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Speaker 4: think this time the nationalist voices on social media and

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Speaker 4: state media have been tampered down because the government doesn't

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Speaker 4: want it to get out of control to a point

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Speaker 4: where they are not the ones managing the narrative.

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Speaker 2: Jenny, it's always a pleasure. Thank you so very much,

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Speaker 2: Jenny Marsh. There she is Bloomberg Greater China ECOGOV team leader,

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Speaker 2: joining us from our studios in Hong Kong here on

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Speaker 2: the Daybreak Asia podcast. Welcome Back, to the Daybreak Asia

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Speaker 2: podcast time Doug Krisner. So, tensions in the Middle East

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Speaker 2: seem to have eased, at least for the moment. Israel

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Speaker 2: and Iran appear to be honoring their ceasefire agreement. At

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Speaker 2: the same time, during the last session, we had constructive

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Speaker 2: comments from Fetcher J. Powell on rate cuts. Here's Powell.

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Speaker 3: Despite elevated uncertainty, the economy is in a solid position overall.

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Speaker 3: A wide set of indicators suggests that the conditions in

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Speaker 3: the labor market are broadly in balanced and consistent with

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Speaker 3: maximum employment. The effects of tariffs will depend, among other things,

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Speaker 3: on their ultimate level for the time being, where we

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Speaker 3: are well positioned to wait to learn more about the

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Speaker 3: likely course of the economy before consider or any adjustments

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Speaker 3: to our policy stance.

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Speaker 2: SO yields were down across the treasury curve. The two year,

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Speaker 2: in fact, closed at its lowest yield since May, and

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Speaker 2: money markets are fully pricing in two Fed rate cuts

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Speaker 2: by the end of the year. For a closer look

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Speaker 2: now at the fixed income space, I'm joined by Joanne Bianco,

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Speaker 2: senior investment strategist at Bond Blocks Investment Management. Joanne, thank

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Speaker 2: you so very much for joining us. So, based on

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Speaker 2: what you heard today from the FED chairman, what is

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Speaker 2: your outlook for the point at which we get the

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Speaker 2: first rate cut.

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Speaker 1: Well, first of all, thank you for having me. Happy

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Speaker 1: to be here, and I think that the FED will

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Speaker 1: want to see more progress on inflation or just even

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Speaker 1: that inflation is contained instead of eventually surging from tariffs.

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Speaker 2: So do you think that July could be the first

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Speaker 2: cut or is that too soon?

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Speaker 1: I still feel like that's too soon, but I think

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Speaker 1: September is more likely. That's certainly what the markets think

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Speaker 1: as well.

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Speaker 2: So you feel pretty comfortable with the inflation story right now,

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Speaker 2: irrespective of the fact that I don't think we have

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Speaker 2: enough clarity on the impact that tariffs are having on prices.

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Speaker 1: Actually, yeah, I don't know that I necessarily feel comfortable

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Speaker 1: about where inflation may go. I do think that there

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Speaker 1: is a lot of uncertainty. But you know, if there

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Speaker 1: is this path where we don't see a surge that

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Speaker 1: is sustained in inflation, then that gives the FED room

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Speaker 1: to cut rates. But you know it could go the

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Speaker 1: other way too.

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Speaker 2: What do you feel about the labor market and the

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Speaker 2: indicators that you're seeing on that front.

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Speaker 1: Yeah, I mean, they're definitely softer, but they haven't weakened materially.

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Speaker 1: So I think with respect to the labor market, if

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Speaker 1: the FED we're going to act based upon the labor market,

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Speaker 1: they'd want to see it materially weaken from here before

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Speaker 1: that would be their reason for cutwights.

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Speaker 2: So do you think that the FED has got it

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Speaker 2: right in terms of how prudent policymakers are being Save

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Speaker 2: a couple of comments that we have had recently, I'm

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Speaker 2: thinking of Michelle Bowman and Chris Waller, who are advocating

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Speaker 2: for a cut as soon as July, but the majority

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Speaker 2: of voices that we have heard from who sit at

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Speaker 2: the FED seem to be a little bit more prudent.

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Speaker 2: Do you think that's the right tone?

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Speaker 1: Yeah, and I think it reflects the continued resiliency of

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Speaker 1: the US economy. It does give the FED a little

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Speaker 1: bit more time before they act.

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Speaker 2: So how are you deploying money in the bond market

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Speaker 2: these days?

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Speaker 1: Well, you know, fixed income has been performing very well

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Speaker 1: in the first half of the year. It's definitely the

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Speaker 1: income generation from fixed income and the higher yields that

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Speaker 1: investors are getting in a lot of different segments within

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Speaker 1: fixed income have been very nice for investors and have

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Speaker 1: pushed volatility that they might have experienced otherwise if they

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Speaker 1: had more equities in their portfolios. So we're seeing a

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Speaker 1: lot of interest in our suite of our different suites

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Speaker 1: of fixed income ETFs from those very same type of

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Speaker 1: clients that want to want want the income, but don't

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Speaker 1: want the return volatility.

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Speaker 2: So, if I were to look at putting money to

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Speaker 2: work in the bond market, irrespective of an ETF, is

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Speaker 2: there a point in the curve that you favor right now?

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Speaker 1: Well, in terms of the treasure yield curve, we're both

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Speaker 1: constructive on the short to intermediate part of the curve.

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Speaker 1: We still think that the long end of the curve,

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Speaker 1: you know, is just more volatile in terms of returns

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Speaker 1: and maybe too volatile for some investors. So we think

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Speaker 1: you get you great income from the middle part of

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Speaker 1: the curve with less return volatility.

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Speaker 2: So your resistance to money to work at the long end,

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Speaker 2: I'm wondering whether that has to do with the uncertainty

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Speaker 2: around inflation or are you concerned a little bit about

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Speaker 2: the deficit story when it comes to federal spending.

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Speaker 1: Yeah, it could actually be both of those reasons.

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Speaker 2: Is there one that predominates in your mind.

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Speaker 1: I think in the near term for US, it's really

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Speaker 1: been more about the inflation story. Longer term it would

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Speaker 1: be the deficit story.

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Speaker 2: I'm curious as to whether or not you're looking offshore

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Speaker 2: at let's say, fixed income markets in Asia or in Europe.

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Speaker 2: Are there opportunities on those fronts.

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Speaker 1: Yeah, well, we've definitely seen opportunities because we have an

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Speaker 1: ETF the Tiggers XMD, and it's short to intermediate term

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Speaker 1: US dollar denominated emerging market stat and that's been like

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Speaker 1: one of the best performers in our in our fun

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Speaker 1: lineup this year because you've seen, you know, there's less

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Speaker 1: interest read sensitivity, but there's like strong yields there and

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Speaker 1: there's been spread tightening in a number of the sovereigns.

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Speaker 1: So it's been like a great place for investors.

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Speaker 2: Joanne, we'll leave it there, Thank you so very much.

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Speaker 2: Joanne Bianco there, senior investment strategist at Bondblock's Investment Management,

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Speaker 2: joining us here on the Daybreak Asia podcast. Thanks for

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Speaker 2: listening to today's episode of the Bloomberg Daybreak Asia Edition podcast.

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Speaker 2: Each weekday, we look at the story shaping markets finance

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Speaker 2: and geopolitics in the Asia Pacific. You can find us

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Speaker 2: on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere

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Speaker 2: else you listen. Join us again tomorrow for insight on

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Speaker 2: the market moves from Hong Kong to Singapore and Australia.

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Speaker 2: I'm Doug Chrisner, and this is Bloomberg